Quite a few people have been calling, emailing, Facebooking, instant messaging, tweeting and texting me with a million different variations of basically the same two questions. 1) I am a potential condo buyer, where can I buy the best deal in Nashville and 2) Which building(s) are the safest for condo investment?
General advice for condo buyers
Now is a great time to be a buyer, in fact, the next 12 months might be the best time in the history of Nashville to be a condo buyer. Obviously, there are traps one could fall into, but for the most part, the landscape is pretty clear cut. For instance, we know that there are now a finite number of condos that will exist in downtown Nashville for at least 5 years. Should our inventory absorption continue at the past 6 month’s pace, it is reasonable to assume that a developer will begin building another condo project in downtown by 2015 (most likely in the Gulch).
We also know that several developers still have excess unsold inventory. The Icon and Velocity each have more than 200 unsold condos and 5th & Main has around115. The Terrazzo has right at 100 unsold condos and is hosting a 30 condo auction this coming Saturday. The West End is also planning on an auction to relieve excess inventory, selling 45 of their 70 unsold condos on December 5th. The Encore and Rhythm each have around 78 unsold condos and both are offering heavy discounts to move that inventory. Not to mention that Rolling Mill Hill has 72 units and sits idle in receivership with no condos listed on the MLS.
The rest of the Nashville condo story
Everyone knows the above information, but very few know the whole story. Which buildings are the best projects from an investment standpoint? Which projects have the possibility of going bankrupt? Which projects have the best pure deals with the lowest risk? These are all questions that I know the answers to because I know all of the players involved.
As an example: The Encore is 80% sold and closed out, leaving 78 unsold condos on the market. There is a pervasive rumor in the real estate community that Tony Giarratana is going to lose those 78 condos plus the 18,000 square feet of retail space in that building because his development partner, Novare Group out of Atlanta, is going to file for bankruptcy in the near future. It is also a consensus that $5 million of the original construction loan still exists as secured debt on the Encore project.
This sounds like a good theory, but I rate the Encore as the second safest place to buy a condo in downtown Nashville behind the Adelicia in Midtown. I also rate it as the best place for an investment minded buyer to purchase for 2 year appreciation. Obviously, I don’t buy into the rumor that Giarratana is going to lose the building. What do I know that you guys don’t know? Yes, Giarratana has loans coming due on several development sites including the Signature Tower site on 5th Ave and Church Street, but will that fact affect the Encore? If so, how will Encore be affected? Are the banking entities and financial partners all the same on all of the deals? The answer is that several partners are involved in several deals, but there is an angel among them who shall remain nameless on my website.
BTW – anyone notice the site work being done on the lot next door to the Encore and just behind the Pinnacle office tower? The Sobro Development Company owns about half of that city block, C B Ragland owns the rest with a small sliver still owned by Norma Crow. Three guesses who is a development partner is the Sobro Development Company? That’s the easy part, now guess what they are clearing that land for (gravel top parking lot is not the end use). Hint – the Mayor’s office, Governor’s Office and CVB are all working behind the scenes to make this happen.
I digress. The point is that if you are a condo buyer, do your research, don’t just buy a condo because someone tells you it’s a good deal (especially the onsite agents who all work for the sellers, not you). Tour all of the buildings and create a spreadsheet that compares the prices, views, unsold inventory, retail and location in town. Be patient – do not walk into a development one day and write a contract on a condo the next day. Negotiate – figure out what else you can get other than a price concession. There are other items like closing costs, HOA forgiveness, appliances, storage units, parking spaces and property management fees that can all be throw-ins to get you the best possible deal.
Be mindful, but don’t wait too long
I don’t know about you, but I love the Oracle of Omaha and his everyman’s sayings. Here’s the one that you need to embrace at this very moment: “Be fearful when others are greedy, and be greedy when others are fearful.” The deals are happening now while the developers are fearful of their construction lenders, but it does not take long for those developers (and banks) to regain confidence. Case in point, the Icon negotiated several sweetheart deals on downtown facing condos in the tower section of the building this past Spring, but as soon as they got to 60% sold out, the deals stopped that day. Now, if you want to negotiate a juicy deal in the Icon and want a downtown view, you have to settle for a condo in the mid-rise. The moral of this story is that there is a point at which the developers will hold onto their best inventory and if those condos are the ones you want the most, you better negotiate before they sell too many.
Of course, there are times when the opposite is true to. During the “sell out” phase of a development, typically the last 10%, you can normally wheel and deal your way all the way to the end on any of the condos. The downside is that last 10% of unsold condos are typically the least desirable floor plans and views.
Should I negotiate myself or use a real estate agent?
Working with a buying agent is not going to cost you a penny (condo sellers pay all commissions) and and buyer agent’s advice will typically save you from making a mistake. The mistake could be in scheduling the punch walk too close to your closing date and not having a fully completed condo on the day you close. It could also be smaller, like forgetting to secure contents insurance. It could also be huge, like leaving $14,450 on the table during negotiations (sorry Mike). Always work with a real estate agent who knows this market and the dynamics that drive it. I am not saying that I am the only agent who ‘gets’ it, but I am saying that the typical suburban agent does not. There are plenty of us who thrive on market knowledge, who own a copy of The Plan of Nashville, who attend community action meetings to learn about what might be coming or closing, who talk to the developers, banker and appraisers…and who have data based every single downtown condo closing from 2008 until now; well, maybe there aren’t that many of us.
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